Shares of Avenue Supermarts, the operator of D-Mart supermarkets, rallied 6 percent to Rs 1,443 on Monday after the company reported double-digit growth in the first quarter of FY20.

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At 9:40 AM, the stock was trading 4.2 percent higher at Rs 1,415.80 on the Bombay Stock Exchange. The stock has fallen 14 percent in the last 1 year as compared to a 6 percent rise in the S&P BSE Sensex.

Consolidated profit during the quarter grew by 31.87 percent to Rs 323.09 crore as compared to Rs 245 crore on year. Consolidated revenue rose 27 percent to Rs 5,814.6 crore against Rs 4,575.8 crore reported in the corresponding period of the last fiscal.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) advanced 41 percent at Rs 596.8 crore in Q1. However, the operating margin contracted in the quarter ended June 30.

“Revenue growth was in line with our expectations. Gross margin was slightly ahead of our expectations and our continued operational efficiency has resulted in higher PAT margins. As we have said in the past, Q1 margins are not usually a reflection of the entire year. We opened 8 stores in this quarter, a large part of which is a spillover from the previous quarter,” Neville Noronha, CEO and Managing Director of the company, said in a statement.

Despite the robust profit growth, brokerages remained mixed on the stock, saying sustainability of margin expansion trend is key to stock performance.

While Credit Suisse upgraded Avenue to 'neutral from 'underperform'; Morgan Stanley remained 'underweight' on the stock. Credit Suisse also raised its price target to Rs 1,330 from Rs 1,175 earlier.

The stock has underperformed in past 1 year as concerns on margin dilution played out, however, with the focus back to core states, Credit Suisse sees the margin concern abating. The Swiss brokerage also increased the company's FY20-FY21 earnings by 2-4 percent.

Morgan Stanley believes that the changing retail landscape will have implications on the company's revenue growth and margin, adding that increased price competition may blunt the company's first-mover advantage.

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